Product life cycle
What are the key stages of product life cycle, and how you can use this information to increase profits and generate sales
All products or services that your business offers will change throughout their life. This concept is known as the product life cycle.
Typical stages of a product life cycle include: development, introduction, growth and maturity, and decline, ending with the product's eventual withdrawal from the market. By better understanding these different stages, you can increase the profitability, interest and demand for your product or service.
Product life cycle - key stages
Understand the sequence of stages your product goes through in a typical product life cycle
All products or services created or provided by your business have a life cycle. This period runs from the initial idea and development of a product to its withdrawal from the market and beyond.
Depending on the type of product or service you launch, the length of a product's life cycle will vary substantially. For example, a fashionable item may have a life cycle of only a few months, whereas an everyday item may have one lasting years.
Typical stages of product life cycle
A product's life cycle goes through the following main stages:
- development - the product/service is designed and physically created
- introduction - the product/service is launched and marketed to a small group of customers
- growth and maturity - the product/service is marketed to a wider audience and reiterated
- decline - the product/service either comes to its natural end or is re-developed
Each of these stages is associated with changes in the product's marketing position. Different marketing strategies at different stages may help prolong the life cycle of your products. Read more about the product life cycle strategies.
Product life cycle: key areas to consider
When developing a new product or service you should assess the following key points:
- design - how efficient the product is, how it can be produced and how it can be easily manufactured
- materials - how you can use the best or most cost-effective materials to increase profit margins, improve the environmental impact of your product, or reduce financial risk
- manufacture - how to make the manufacturing process more efficient, or reduce costs
- retail - how to optimise costs incurred through packaging or transportation
- use - how you can make the product or service last longer in order to increase customer satisfaction
- end of life - how materials or ideas from your service or product can be recycled
You need to think about how each of these will affect the various areas of your profitability.
If you're considering developing a new product or service, see 7 key advantages of R&D for small business.
Development stage of a product life cycle
Product development is the first stage of the product life cycle. It begins only when you find and start to develop a new idea.
How to develop a product idea
You may be an inventor who has already come up with a new product or service idea, and is ready to bring that idea to market. However, if you are a business that needs some help to regularly develop new ideas, you might want to partner with innovators, designers, university researchers or manufacturers to develop your ideas generation processes. Then you can work as a team to develop the idea.
What to consider at the development stage of product life cycle
At the development stage of the product life cycle, you should ensure that your idea will meet:
- potential customer expectations
- design, resource and manufacturing requirements
- the strategy outlined in your business plan
You should plan for all the potential outcomes and risks and analyse what is involved in the process.
Development stage - objectives
At this stage, you should not worry about sales or introducing the product. Your focus should be on working with a team of designers, manufacturers or product development experts on:
- producing prototypes
- testing prototyped product
- sourcing and pricing materials
- intellectual property issues
To further develop your product, you should:
- consult team members on development plans
- speak to suppliers and other business associates
- communicate with customers about your plans
- consider the environmental impacts of your product
- ask a group of potential customers to test your product and give feedback - you can use this to develop the product and, later in the product's life cycle, to market it
When developing your product or service you need to establish the level of quality you are aiming for, and how many different versions you want to develop to generate interest at launch.
See more on the introduction stage of a product life cycle.
During development, it is important to take steps to protect all your intellectual property rights - eg patents and trademarks - before you launch the product or service. Doing this protects you from other competitors copying the idea and hurrying through an alternative. See how to protect your intellectual property.
Introduction stage of a product life cycle
The introduction stage of a product's life cycle is when you can build an awareness of your product or service in certain markets.
Introduction stage of product life cycle - objectives
During the introduction stage, you should concentrate on building a base for your product, and focus on the following marketing factors:
Price your product or service
You should initially start pricing at the highest point you believe it is possible to achieve. You can also consider a skimming price strategy - charging a relatively high price for a short time when you launch a new, innovative or much-improved product. The aim of skimming is to skim off customers who are willing to pay more to be one of the first to have a new product. You can lower the prices later when demand from the early adopters falls.
A penetration pricing strategy may work best for businesses entering a new market or building on a relatively small market share. It involves the setting of lower, rather than higher prices to achieve a large, if not dominant market share.
See how to price your product or service.
Your distribution should be selective and limited to a specific type of consumer until your product is accepted. Also, you should consider different distribution models during different periods of the product life cycle, eg new products for different seasons in a clothes shop.
You should try to build brand awareness at an early stage. It is worth working with a brand design or communications agency as you develop a product to establish a strong brand.
You can use samples or trial incentives to capture early adopters of the product or service. Introductory promotions can also help convince potential resellers to carry your lines. Different marketing strategies work better at different stages of the product's life cycle. Read more about the product life cycle strategies.
Product life cycle introduction: profitability
It is likely that, at the introduction stage, your sales will be low until customers become aware of your product or your service's benefits. Due to the high cost of advertising and low initial sales, it is possible that you won't make immediate profits or you may even find that the product is producing negative profits. However, you should make up for this with increasing revenue generated at the growth and maturity stage of a product life cycle.
Growth and maturity stage of a product life cycle
At this point in your product's life cycle, you should be putting your efforts into:
- increasing your product's market share
- creating a brand preference for your customers
Product growth stage
This should be a period of rapid growth in both sales and profits for your product or service. Your profits should rise through an increase in output and more competitive pricing.
You should also consider:
- maintaining product quality and adding features or support services for the product
- maintaining pricing to increase demand for the product
- increasing distribution channels to cope with demand
- aiming promotion at a wider audience
If your profits are still low, consider reducing the price of the product or service to increase the volume of sales. See how to price your product or service.
Remember that different marketing strategies work better at different stages of the product's life cycle. You may want to tailor your strategies to your product's changing marketing position. Read more about product life cycle strategies.
Product maturity stage
If your product or service makes it to the maturity stage, this should be the longest part of its product life cycle.
At this stage, you will probably notice that:
- you may need to enhance product features to make it more appealing than competitors'
- you may need to lower your pricing due to increased competition
- distribution is becoming more intensive and you may need to offer incentives
- you may need to focus your promotion on the difference between existing products
At this point, the market has often reached saturation as a result of competitors releasing their own version of your product. Your product or service may experience a decreasing rate of sales, which should eventually stabilise.
To prolong their life span, you should aim to differentiate your product or service from others that your competitors offer. You can do this by focusing on and highlighting any branding, trademarks, or customer testimonials that may give you an advantage.
Keep in mind that the sales of most products will decline at some stage and the product will come to its natural end. Find out more about this in product life cycles - decline stage.
Product life cycles - decline stage
The sales of most products will decline at some stage. This can be due to factors such as technological advances, trends, innovation or changing consumer tastes.
You will know when your product reaches the decline stage of its life cycle because you will notice a significant downturn in the revenue it generates.
Product decline strategies
At this stage, you should consider:
- maintaining the product in the hope that your other competitors will withdraw their versions before you, which may create an increase in demand again
- reducing your costs and finding another use for the product - entering into another niche area could increase profits
- reducing marketing support, 'harvesting' the product, coasting along until profits dry up and then discontinuing the product
- discontinuing the product when your profit disappears, or when you unveil a successor product
Extending the lifespan of your product
Some of these methods can form an 'extension strategy' that prolongs the life of your current product or service. Such a strategy can temporarily delay the decline and give you enough time to improve or amend your existing product or develop a new one. Read more about product life cycle strategies.
By understanding the product life cycle of all of your products and services, you can ensure that at least one of your ventures is at growth or maturity stage, while another is in decline. By doing this you can guarantee a regular source of profit for all of your products.
Read more about the growth and maturity stage of a product life cycle.
Product life cycle strategies
The product life cycle contains four distinct stages: introduction, growth, maturity and decline. Each stage is associated with changes in the product's marketing position. You can use various marketing strategies in each stage to try to prolong the life cycle of your products.
Product introduction strategies
Marketing strategies used in introduction stages include:
- rapid skimming - launching the product at a high price and high promotional level
- slow skimming - launching the product at a high price and low promotional level
- rapid penetration - launching the product at a low price with significant promotion
- slow penetration - launching the product at a low price and minimal promotion
During the introduction stage, you should aim to:
- establish a clear brand identity
- connect with the right partners to promote your product
- set up consumer tests, or provide samples or trials to key target markets
- price the product or service as high as you believe you can sell it, and to reflect the quality level you are providing
You could also try to limit the product or service to a specific type of consumer - being selective can boost demand. Read more about the introduction stage of a product life cycle.
Product growth strategies
Marketing strategies used in the growth stage mainly aim to increase profits. Some of the common strategies to try are:
- improving product quality
- adding new product features or support services to grow your market share
- enter new markets segments
- keep pricing as high as is reasonable to keep demand and profits high
- increase distribution channels to cope with growing demand
- shifting marketing messages from product awareness to product preference
- skimming product prices if your profits are too low.
Growth stage is when you should see rapidly rising sales, profits and your market share. Your strategies should seek to maximise these opportunities.
Product maturity strategies
When your sales peak, your product will enter the maturity stage. This often means that your market will be saturated and you may find that you need to change your marketing tactics to prolong the life cycle of your product. Common strategies that can help during this stage fall under one of two categories:
- market modification - this includes entering new market segments, redefining target markets, winning over competitor's customers, converting non-users
- product modification - for example, adjusting or improving your product's features, quality, pricing and differentiating it from other products in the marking
Read more about the growth and maturity stage of a product life cycle.
Product decline strategies
During the end stages of your product, you will see declining sales and profits. This can be caused by changes in consumer preferences, technological advances and alternatives on the market. At this stage, you will have to decide what strategies to take. If you want to save money, you can:
- reduce your promotional expenditure on the products
- reduce the number of distribution outlets that sell them
- implement price cuts to get the customers to buy the product
- fin another use for the product
- maintain the product and wait for competitors to withdraw from the market first
- harvest the product or service before discontinuing it
Another option is for your business to discontinue the product from your offering. You may choose to:
- sell the brand to another business
- significantly reduce the price to get rid of all the inventory
Many businesses find that the best strategy is to modify their product in the maturity stage to avoid entering the decline stage. Find out more about product life cycle - decline stage.